That guy — the Patient Zero of the global economic meltdown — was one Joseph Cassano, the head of a tiny, 400-person unit within the company called AIG Financial Products, or AIGFP. Cassano, a pudgy, balding Brooklyn College grad with beady eyes and way too much forehead, cut his teeth in the Eighties working for Mike Milken, the granddaddy of modern Wall Street debt alchemists. Milken, who pioneered the creative use of junk bonds, relied on messianic genius and a whole array of insider schemes to evade detection while wreaking financial disaster. Cassano, by contrast, was just a greedy little turd with a knack for selective accounting who ran his scam right out in the open, thanks to Washington’s deregulation of the Wall Street casino.
Tag: Economy & Business
A Decade to Lose
If governments don’t understand and simply try to bring back the “good times” of an asset-based economy, it could result in a decade of stagnation.
Developing economies are already 30 percent of the global economy at current price and nearly half on a purchasing power basis. The export model cannot thrive for shortage of customers. Developing countries have to trade more with each other and develop domestic demand. But this would require painful reforms to their political economies. The key is property rights and income distribution. The two must go hand in hand. Lack of domestic demand tends to result from income concentration, which is due to uneven playing field in opportunities. Many developing countries, like South American and Southeast Asian countries, have stagnated in the past decade due to their inability to reform their political economies.
Bursting of the credit bubble is triggering the biggest recession since the World War II. Repairing the global economy requires complex and difficult reforms. Simple stimulus can’t bring back prosperity. Thanks to Peggy Sadler
Andy Xie was Morgan Stanley’s Chief Economist for Asia Pacific from 1997 to 2006.
via A Decade to Lose.
This Too Shall Pass
We are now in an astonishingly noncommercial moment. Risk is out of favor. The financial world is abashed. Enterprise is suspended. The public culture is dominated by one downbeat story after another as members of the educated class explore and enjoy the humiliation of the capitalist vulgarians.
Washington is temporarily at the center of the nation’s economic gravity and a noncommercial administration holds sway. This is an administration that has many lawyers and academics but almost no businesspeople in it, let alone self-made entrepreneurs. The president speaks passionately about education and health care reform, but he is strangely aloof from the banking crisis and displays no passion when speaking about commercial drive and success.
But if there is one thing we can be sure of, this pause will not last. The cultural DNA of the past 400 years will not be erased. The pendulu
via Op-Ed Columnist – The Commercial Republic – NYTimes.com.
A Simple Guide to the Banking Crisis
Proposition 1: The boom in the U.S. was funded almost totally by foreign money.
Proposition 2: Foreign investors preferred to put their money into investments that were perceived as having low risk.
Proposition 3: Today, after everything has gone bad, many of the counterparties on the other side of the toxic assets are foreign investors, directly or indirectly.
Proposition 4: It’s a lot harder for the Federal Reserve and Treasury to resolve a banking crisis where the main counterparties are not American.
Proposition 5: The fact that the counterparties are overseas means that out of the three options: bailout, bankruptcy, or nationalization—none are satisfactory.
The best actual marker of the progress of the financial crisis is not stock or real estate prices, but rather how well international cooperation holds up.
Sometime later this year we will have a massive global conference aimed at simultaneously resolving the banking crises in the major developed countries. The goal will be a political negotiation of the value of the toxic assets, and a clearing of the books.
If the conference succeeds, then it will be possible to fix the financial system relatively easily. But if it fails, then things get dicey.
“The Great Disruption”
— when both Mother Nature and Father Greed have hit the wall at once — “The Great Disruption.”
“We created a way of raising standards of living that we can’t possibly pass on to our children,” said Joe Romm, a physicist and climate expert who writes the indispensable blog climateprogress.org. We have been getting rich by depleting all our natural stocks — water, hydrocarbons, forests, rivers, fish and arable land — and not by generating renewable flows.
“We are taking a system operating past its capacity and driving it faster and harder,” he wrote me. “No matter how wonderful the system is, the laws of physics and biology still apply.” We must have growth, but we must grow in a different way. For starters, economies need to transition to the concept of net-zero, whereby buildings, cars, factories and homes are designed not only to generate as much energy as they use but to be infinitely recyclable in as many parts as possible. Let’s grow by creating flows rather than plundering more stocks.
via Op-Ed Columnist – The Inflection Is Near? – NYTimes.com.
Globalization Retreating
“The collapse of globalization . . . is absolutely possible,” said Jeffrey Sachs, a noted American economist. “It happened in the 20th century in the wake of World War I and the Great Depression, and could happen again. Nationalism is rising and our political systems are inward looking, the more so in times of crisis.”
Tom Friedman Is Worried
I’m worried. We’ve just elected a talented young president with many good instincts about how to propel our country forward, extend health care to more people, make our tax code fairer and launch a green industrial revolution. But do you know what I fear? I fear that his whole first term could be eaten by Citigroup, A.I.G., Bank of America, Merrill Lynch, and the whole housing/subprime credit bubble we inflated these past 20 years.
I hope my fears are exaggerated. But ask yourself this: Why couldn’t former Treasury Secretary Hank Paulson solve this problem? And why does it seem as though his successor, Tim Geithner, won’t even look us in the eye and spell out his strategy? Is it because they don’t get it? No. It is because they know — like Roy Scheider in the movie “Jaws,” when he first saw the great white shark — that “we’re gonna need a bigger boat,” and they’re too afraid to tell us just how big.
The Formula That Killed Wall Street
In the mid-’80s, Wall Street turned to the quants—brainy financial engineers—to invent new ways to boost profits. Their methods for minting money worked brilliantly… until one of them devastated the global economy.
via Recipe for Disaster: The Formula That Killed Wall Street
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USA – The Great World Hope
Johns Hopkins University foreign policy expert Michael Mandelbaum in his book, “The Case for Goliath.
” When it comes to the way other countries view America’s pre-eminent role in the world, he wrote, “whatever its life span, three things can be safely predicted: they will not pay for it; they will continue to criticize it; and they will miss it when it is gone.”
A senior Korean official remarked to Tom Friedman
“No other country can substitute for the U.S. The U.S. is still No. 1 in military, No. 1 in economy, No. 1 in promoting human rights and No. 1 in idealism. Only the U.S. can lead the world. No other country can. China can’t. The E.U. is too divided, and Europe is militarily far behind the U.S. So it is only the United States … We have never had a more unipolar world than we have today.”
Yes, many Asians resent the fact that Americans scolded them about their banking crisis in the 1990s, and now we’ve made many of the same mistakes. But that schadenfreude doesn’t last long. In random conversations here in Seoul with Korean and Asian thinkers, journalists and business executives, I found people really worried: Could it be, they ask, that the Americans don’t know what they are doing, or, worse, that they know what they are doing but the problem is just so much bigger than anything we’ve ever seen?
Biggest Housing Bubble Of The Century
This chart puts the size of the last Housing Bubble in perspective and show us how far we have to go to correct it.
The next chart shows how far we have come in downgrading 56% of all Mortgage-Backed Securities issued from 2005 through 2007 Bubble. 